After the rout in the second half of 2014, oil prices continued their downward trajectory in the first quarter of 2015.
However, prices have bounced back since then as several independent oil & gas producers in the U.S. and Canada have slashed their capital spending.
Independent oil & gas producers in North America, who focus on unconventional fields, have been the hardest hit by the plunge in oil prices. These producers require prices at well above $70 per barrel to sustain although some larger players can remain profitable at a price around $60 per barrel.
At last check on Tuesday, Brent crude prices were trading at $65.47 per barrel, while WTI crude was trading at $58.76 per barrel. The question is where prices will go from here. The supply glut that had caused the plunge in oil prices in the first place remains. With Saudi Arabia continuing to refuse to cut back on its production, it will take some time before the glut is eased and the market becomes fundamentally balanced. On the demand side, the slowdown in China does not augur well for oil prices. However, China’s long-term goal of transitioning its economy from export and investment-focused to one driven by consumers augurs well for oil prices.
The structural reform though will take some years. This year, the IEA expects supply to exceed demand once again. So prices could continue to remain under pressure. The key for North American producers will be to bring down their costs and improve efficiency.
This morning, Calgary-based independent oil & gas company, Strategic Oil & Gas Ltd. (TSX-Venture:SOG) reported its financial results for the first quarter of 2015. The company’s capital expenditure for the first quarter was $7.5 million. The capex was mainly directed towards drilling and completion operations for one Muskeg horizontal well at Marlowe, and completing another well drilled in December 2014.
During the first quarter, SOG’s average daily production totaled 3,267 barrels of oil equivalent per day, compared to 3,925 barrels of oil equivalent per day reported in the previous quarter. The lower production was due to the shut-in of 700 barrels of oil equivalent per day production at Bistcho and Cameron Hills in February 2015 and lack of drilling activity in the current period.
Importantly, SOG brought down its operating costs by 37% compared to 2014 levels. Operating costs per barrel of oil equivalent were reduced to $14.75 in the first quarter of 2015. For the same period last year, operating costs per barrel were $32.53. Hopefully these reductions in costs will help the Company as it continues to weather the oil price decline.
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